US Industrial Output Posts Largest Back-to-Back Gains Since 2021 Factory production notches broad advance led by consumer goods
US industrial production posted a solid advance for a second month in June, helped by a pickup in factory output that indicates manufacturing could be regaining some footing.
The 0.6% increase in production at factories, mines and utilities followed a revised 0.9% gain a month earlier, marking the biggest two-month advance since late 2021, Federal Reserve data showed Wednesday. The median estimate in a Bloomberg survey called for a 0.3% increase.
Factory output rose 0.4% — in a broad advance that included gains in autos, electrical equipment, appliances and nondurable goods — following May’s upwardly revised 1% increase. Mining and energy extraction rose 0.3%, while output growth at utilities accelerated.
Output of consumer goods rose 1%, the most in nearly a year. (…)
Fresh Cycle High (Wells Fargo):
Manufacturing production jumped 0.84% QoQ in Q2, better than the sum of the 5 previous quarters.
Recall that recent ISM manufacturing surveys were pretty gloomy, contrary to S&P Global’s surveys. Here’s S&P Global’s June survey comments:
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®) ticked up to a three month high of 51.6 in June from 51.3 in May. (…) Some signs of demand picking up helped firms to secure a rise in new orders for the second month running, with the rate of growth quickening. (…) US manufacturers expanded production in response to higher new orders (…).
Expectations of an increase in new orders, plus higher current output requirements, encouraged firms to take on extra staff. Employment rose for the sixth month running, and at a solid pace that was the fastest in 21 months.
Two days later, the ISM Services PMI came in at 48.8% down a huge 5 points from May:
The Business Activity Index registered 49.6 percent in June, which is 11.6 percentage points lower than the 61.2 percent recorded in May and the first month of contraction since May 2020.
The New Orders Index contracted in June for the first time since December 2022; the figure of 47.3 percent is 6.8 percentage points lower than the May reading of 54.1 percent.
The Employment Index contracted for the sixth time in seven months and at a faster rate in June; the reading of 46.1 percent is a 1-percentage point decrease compared to the 47.1 percent recorded in May.
S&P Global’s Services PMI, which received almost zero media coverage, was the total opposite:
The seasonally adjusted S&P Global US Services PMI® Business Activity Index increased for the second consecutive month in June, posting 55.3 following a reading of 54.8 in May. Activity in the sector has now risen in each of the past 17 months, with the latest expansion the most pronounced since April 2022.
Total new business expanded for the second month running, and at a solid pace that was the fastest for a year.
Higher new orders resulted in a fresh increase in employment in the sector, ending a two-month sequence of reduction. Moreover, the rate of job creation was solid and the sharpest since May 2023.
The very soft ISM reports followed weaker than expected consumer demand data, prompting most pundits to conclude that monetary policy was finally biting harder.
But S&P Global’s surveys were painting a very different picture.
And Friday’s retail sales data revealed that May nominal sales actually rose 0.3%, not 0.1% as originally reported, amid continued deflation in goods. While June retail sales came in flat, ex-Autos were up 0.4% and Control Sales jumped 0.9% after +0.4% in May. In real terms, demand for goods remains very strong.
- If the #consumer is under pressure apparently no one told them. Core Retail Sales have accelerated for 5 of the last 6 months. (@RBAdvisors)
We will see in 2 weeks if demand for services is as weak as recently reported. S&P Global’s Services PMI suggests not.
Maybe we have seen the low in this chart (via Ed Yardeni)
American CEOs are not gloomy:
Source: Conference Board, Haver Analytics, Apollo Chief Economist
Beige Book – July 2024 “Modest to moderate”
Overall Economic Activity
Economic activity maintained a slight to modest pace of growth in a majority of Districts this reporting cycle. However, while seven Districts reported some level of increase in activity, five noted flat or declining activity—three more than in the prior reporting period.
Wages continued to grow at a modest to moderate pace in most Districts, while prices were generally reported to have risen modestly.
Household spending was little changed this period according to most District banks. Auto sales varied across Districts this cycle, but some Districts noted that sales were lower due in part to a cyberattack on dealerships and high interest rates.
Most Districts saw soft demand for consumer and business loans. Reports on residential and commercial real estate markets varied, but most banks reported only slight changes, if any, in recent weeks. Travel and tourism grew steadily and was on par with seasonal expectations. Agricultural conditions varied in tandem with sporadic droughts across the nation.
Districts also reported widely disparate trends in manufacturing activity ranging from brisk downturn to moderate growth. Retail restocking spurred slight growth in transportation activity. Meanwhile, tight capacity in ocean shipping led to a surge in spot rates.
Expectations for the future of the economy were for slower growth over the next six months due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation.
Labor Markets
On balance, employment rose at a slight pace in the most recent reporting period. Most Districts reported employment was flat or up slightly, while a few Districts reported modest employment growth. Several Districts reported declines in employment in the manufacturing sector due to slowdowns in new orders. Skilled-worker availability remained a challenge across all Districts; however, several Districts reported some improvement in labor supply conditions. Additionally, labor turnover was lower, which reduced demand to find new workers.
Looking ahead, contacts in several Districts expect to be more selective on who they hire and not backfill all open positions. Wages grew at a modest to moderate pace in most Districts. However, several Districts reported some slowing of wage growth due to increased worker availability and less competition for workers.
Prices
Prices increased at a modest pace overall, with a couple Districts noting only slight increases. While consumer spending was generally reported as showing little to no change almost every District mentioned retailers discounting items or price-sensitive consumers only purchasing essentials, trading down in quality, buying fewer items, or shopping around for the best deals. Most Districts noted that input costs were beginning to stabilize; however, Atlanta specifically noted products like copper and electrical supplies have seen a notable increase over this period.
Where Do Economists Think We’re Headed? These Are Their Predictions The Wall Street Journal’s latest quarterly survey shows economists’ expectations for growth, inflation and interest rates.
(…) For about two years, economists consistently underestimated the strength of the U.S. economy, forecasting the economy would grow slower than it did.
That changed recently when growth was lower than expected in the first three months of the year. Still, most economists believe that a slowdown was inevitable after a period of rapid expansion and too-high inflation. The economy, they argue, is normalizing rather than deteriorating. (…)
Demand for workers seems to be cooling even as job growth remains solid, thanks in part to increased immigration. Again, economists are optimistic that this represents a return to a more stable environment. (…)
Current forecasts—like previous forecasts—show strong confidence that the Fed will succeed in bringing inflation down to its 2% target.
Biden Forgives $1.2 Billion in Student Loans in Latest Relief The assistance will affect 35,000 public service workers enrolled in the government’s loan forgiveness program, including nurses, firefighters and teachers.
China Vows to Push for High-Quality Development as ‘Top Mission’ Officials also pledge to ‘actively expand domestic demand’
The ruling Communist Party pledged to deepen supply-side reforms to generate new momentum for growth, in a statement Thursday marking the close of a conclave that’s often heralded major policy shifts. Officials reaffirmed their determination to hitting this year’s development goals, which include an annual growth target of about 5% — a commitment that comes days after second quarter data disappointed.
“High-quality development is the top mission of building a modern socialist country,” the official Xinhua News Agency said. That vague slogan is typically used to signal the Chinese leader’s desire to build a society driven by advanced technology that gives Beijing resilience against US trade curbs. (…)
The ruling party normally issues a more detailed report several days after concluding the Third Plenum. Specific policies taking cues from the meeting are more likely to come from a sit-down of China’s 24-man Politburo later this month, which typically focuses on economic issues for the year.
While the communique suggested officials are continuing to bet on advanced manufacturing to power the Chinese economy, they also committed to efforts to “actively expand domestic demand,” addressing an issue economists have highlighted as needing greater attention. No specifics were given for that goal. (…)
The plenum also announced plans to:
- Actively expand domestic demand
- Deepen reforms of science and technology
- Accelerate new dynamics in foreign trade
- Prevent and resolve risks in the real estate sector
- Deepen reform of the financial and taxation systems
- Improve macroeconomic policy adjustments
- Create a fairer, more dynamic market environment
- Improve national security mechanisms
- Deepen reform of medical and healthcare systems
(…)
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